Does insurance cover a volcanic eruption?

Jimmy Buffett, whose personal fortune, Margaritaville and Landshark brands and parrothead concert tours make him something of an expert on all flavors of insurance, was admittedly at a loss for direction when he sang, "I don't know where I'm a-gonna go when the volcano blows."

So what does happen from an insurance perspective when a major unpronounceable peak suddenly decides to doff its top?

The answer depends on who is insured -- and for what.

Thousands of travelers were temporarily stranded in airports across six European nations recently when the volcano beneath Iceland's Eyjafjallajokull glacier erupted, grounding most air travel in Western Europe with its thick drifting clouds of toxic ash.

The British insurance association ABI says that although volcanic eruptions are not covered by all travel insurance policies, airlines often offer a refund or an alternative flight in the event a flight is cancelled. Unfortunately for Americans who were forced to extend their vacation on exotic Concourse D, neither option would get them across the pond in this case.

What about those economically ravaged airlines? According to Reuters, the grounded airlines will likely have to absorb the losses without assistance from major airline insurers like Munich Re and Swiss Re because flight cancellations are not typically included in standard air crash and liability coverage.

Airports and air cargo companies are similarly out of luck, since their insurance policies typically do not cover such things as business interruption to the airport or delayed delivery of parts to factories or construction sites.

In most instances, the only way the airlines could file a claim would be in the event the ash cloud had caused damage to their fleet. Since most of the planes were grounded out of safety concerns, there's little likelihood of a sudden flurry of claims.

American homeowners who were mesmerized by the televised coverage of the Icelandic eruption may wonder whether their homeowners insurance would pay out should a nearby peak suddenly decompensate.

The answer, in most cases, is yes.

According to State Farm Insurance, "most homeowners policies provide coverage for property loss caused by volcanic eruption when it is the result of a volcanic blast, airborne shockwaves, ash, dust or lava flow. Fire or explosion resulting from volcanic eruption also is covered." If the eruption causes damage to your vehicle, your auto policy most likely covers it as long as you have comprehensive coverage.

Unfortunately, most homeowners insurance does not cover movements of earth, including earthquakes, tremors and mudslides, whether they are caused by an eruption or not. For those calamities, you need either a special policy endorsement or a separate policy addressing those specific issues.

Similarly, floods are not typically covered in a homeowners policy, with or without volcano. Flood insurance is the province of the National Flood Insurance Program and must be in place prior to a flood.

Like Jimmy, I don't know where I'd head if faced with the prospect of a toxic volcanic dusting, but it's comforting to know my homeowners insurance will cover my ash.

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